Housing Market Lags Other Areas Of Recovery

Okay. So auto loans are easier to come by. To find out if that's the same for home loans, and to take a look at the overall housing market, we turn to David Wessell as we often do. He is economics editor of The Wall Street Journal. David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: You know, I got an email the other day that was offering, on certain kinds of mortgages, three percent interest, and I guess four percent is getting to be normal right now. So are more people taking advantage of that and buying homes?

WESSEL: Well, not as many as you'd expect. Given that housing prices are still falling in most places, and as you point out, there's like a fire sale on mortgages going on – the rates are lower than they've been in a generation - you'd expect to see a lot of people coming out and buying houses. That's been very slow to happen. Now, one reason is that people don't want to buy something if they think it's going to be worth less tomorrow. Another is that it's hard to buy a house if you don't have a job. And a lot of people don't have jobs.

But there's also something else very troubling going on. Some would-be buyers with reasonably good credit histories can't get loans. I talked to one third-generation mortgage broker in Boulder, Colorado, a guy named Lou Barnes(ph) , and he tells me that he sees people every 48 hours who can't get a loan today who his father or grandfather would have had an easy time getting a mortgage for. Ben Bernanke, the Fed chairman, has said that roughly the bottom third of people who might have qualified for a prime mortgage, not a subprime one, a prime mortgage, just a few years ago, can't qualify today.

INSKEEP: Wait a minute. What is making the banks so nervous at this point?

WESSEL: Well, that's a good question. So in the past, mortgages were too easy to get and the banks have overreacted, I think. But one problem that they cite is banks and the others who make mortgages don't keep them any longer; they sell them and they sell them to Fannie Mae, Freddie Mac or the Federal Housing Administration, or they're guaranteed by one of those government entities. Well, those entities are trying to protect the taxpayers and the way they protect the taxpayers in part is if someone doesn't pay their mortgage and they discover that the person who made the loan originally somehow made a mistake or overlooked something or shouldn't have made the mortgage in the first place, they say a-ha, you're stuck with the losses.

Because of that, the banks are very skittish. And they're reluctant to take on somebody who has even the smallest little mar on their credit history because they don't want to get stuck eating the loan later.

INSKEEP: Normally they'd pass the loan on to Fannie Mae, say, but now if there's the slightest problem with the mortgage, it's going to be thrown right back at the bank. That's what's happening.

WESSEL: It's always been the fact that Fannie Mae, Freddie Mac and the Federal Housing Administration can take a loan if the people don't pay it and say even though we took this from you, even though we guaranteed it, it's your fault 'cause you didn't check whether the guy really had a job or something. It's just that that fear of getting the mortgage back seems to be freezing up the market or one of the reasons the market is frozen.

INSKEEP: Well, that's understandable, how it would happen, but it still must be maddening for people that we've been talking about banks not loaning enough money for three, four years now.

WESSEL: Right. So one of the things that's going on is the Federal Reserve, the Treasury and the White House have been putting a lot of pressure on this independent agency that regulates the housing market, regulates Fannie and Freddie, to get them to sort of don't be so aggressive about pushing back loans for little paperwork things and don't charge so many fees. They have made some progress on the refinancing, if you have a loan getting a new one at a cheaper rate. And now they're beginning to look at can they do things to streamline the system so that people with good credit can get mortgages and we can get this thing going again.

INSKEEP: Well, let's talk about the agency you're mentioning there, the Federal Housing Administration. Aren't there some concerns about that agency's own finances?

WESSEL: Absolutely. The FHA is making one third of all new mortgages today, or it's guaranteeing one-third of all new mortgages today. The taxpayers have already bailed out Fannie Mae and Freddie Mac, but so far the FHA has managed to get by on the premiums it charges when it guarantees a loan. But they have such big losses on loans made in the past that they're reserves are down. An independent audit says there's a 50/50 chance that the taxpayers may bail them out. Housing has been the single biggest cost to taxpayers of the whole financial bailout and the fear is that the FHA is going to now make it even a bigger cost.